Sodexho Announces Strong Improvement in Results for Fiscal 2007

Regulatory News: The Sodexho Alliance (PARIS:SW) (OTCBB:SDXAY) Board of Directors met on November 13, 2007 under the chairmanship of Pierre Bellon to close the accounts for the year ended August 31, 2007. Key financial performance indicators   IFRS accounting standardsIn millions of euro   Fiscal year ended August 31,     2007 2006 % change (current exchange rates) % change (constant exchange rates) (1) Income statement highlights   Revenue 13,385 12,798 4.6% 8.3% Organic growth + 8.4% + 6.4%     Operating profit 640 605 5.7% 9.2% Operating profit (excluding Spirit and U.S. litigation) 640 577 10.9% 14.5% Operating margin (excluding Spirit and U.S. litigation) 4.8% 4.5%     Net income 347 323 7.5% 11.0% Earnings per share (in euros) 2.22 2.07 7.5% 11.0% Financial structure highlights Net cash provided by operating activities 753 488   Reduction of net debt (2) (331) (234)   Borrowings / operating cash flow (years) 3.4 4.2   (1) The currency impact is calculated by applying the average exchange rates for the previous fiscal year to the current fiscal year figures. In Fiscal 2007, the effect of movements in the exchange rate of the US Dollar against the euro was (434) million euro on revenue, (17) million euro on operating profit and (9) million euro on profit attributable to equity holders of the parent. (2) Borrowings less cash and cash equivalents (restricted cash and financial assets related to the Service Vouchers and Cards activity). Sodexho CEO, Michel Landel, said: "Our teams can be proud of these good results achieved in Fiscal 2007 which reflect the efforts of all employees throughout the world. This solid performance shows the relevance of our strategic choices and efficiency in their implementation. We intend to reinforce our position as a global expert in both Food and Facilities Management services and in Service Vouchers and Cards. To associate our employees with our growth, we intend to launch during 2008 a new international employee share ownership plan in 25 countries. The diversity of our teams and their strong motivation, the considerable potential of our markets and the strength of our financial model, make me particularly confident in our future.” Acceleration in organic revenue growth in two years Sodexho’s consolidated revenue increased in Fiscal 2007 by 587 million euro over the previous year to reach 13,385 million euro. Development intensified in Food and Facilities Management services, illustrated by: An uplift in organic growth in North America (+ 8.8%) reflecting acceleration across all segments; Continued growth in Continental Europe (+ 5.1%); Confirmation of a return to growth in the UK (+ 6.1%) Further strong activity in the Rest of the World (+ 15.3%), with double-digit growth in Latin America, Asia-Australia and Remote Sites. In addition, Service Vouchers and Cards confirmed its dynamic growth profile with organic revenue growth of 20.1%. Improvement in performance indicators During the year, the Group continued to implement its strategy: A client retention rate of 93.9%, in line with Fiscal 2006 (+ 0.1%); with good progress in North America, where the Group’s 95% target was exceeded; Revenue growth on existing sites exceeded 5%; Business development (new contract wins) remained above 9%, reflecting good performance in all geographies. Results from our most recent employee engagement survey, conducted every two years with employees worldwide, shows: Over 80% of our employees identify with Sodexho’s values (Service Spirit, Team Spirit and Spirit of Progress) 83% would not hesitate to recommend Sodexho to a friend looking for a job. Increase in operating profit Operating profit increased 5.7% from the prior year to 640 million euro. It should be noted that operating profit from the previous year included a gain of 21 million on the divestiture in the U.S. of the river and harbor cruise business, Spirit Cruises and release of the 7 million euro provision for U.S. litigation following final resolution of the case; Excluding these items, operating profit rose 10.9% at current exchange rates and 14.5% at constant exchange rates, surpassing the Group’s objectives set at the beginning of the fiscal year. The operating margin reached 4.8%, compared with 4.7% for Fiscal 2006, or 4.5% excluding the gain from Spirit Cruises and the effect of the US litigation provision release during the previous year. Food and Facilities Management Highlights of operating profit performance in the Food and Facilities Management services activity are as follows: In North America, operating profit was 253 million euro, a decrease of 1.6% at constant exchange rates compared with the previous year. Excluding the gain from Spirit Cruises and release of the provision for U.S. litigation, the operating result shows an increase of 9.6% at constant exchange rates. The operating margin was 4.6%. Despite productivity gains recorded on labor costs, particularly in Education and Business & Industry, and improved operational performance in Defense, the increase was limited by: the impact on revenue growth of a 53rd week of activity in Fiscal 2007 as a result of the 52/53 week calendar used by Sodexho in North America, in line with industry practice. on Fiscal 2007 revenue growth, which had no significant effect on operating profit because of start-up costs related to the timing of the start of the academic year; price inflation on some food products. In Continental Europe, operating profit was 214 million euro, an increase over the previous year of 4.9% excluding currency effects. Further productivity efforts in purchasing and labor costs helped to offset inflation on certain food products. Investment in human resources was intensified to accelerate medium-term business development. The operating margin was 4.9%, a level equivalent to Fiscal 2006. In the UK and Ireland, operating profit was 72 million euro and operating margin was 4.9% compared with 3% for Fiscal 2006. The operating margin in the UK and Ireland has now reached the Group average, meeting the recovery objectives set three years ago. In the Rest of the World, growth in operating profit of more than 50% to 41 million euro resulted in an improvement in operating margin, which rose from 1.9% in Fiscal 2006 to 2.6%. This success is attributable in part to more rigorous management and contract renegotiations in Remote Sites. Sodexho continues to invest in human resources and support functions in China and India to sustain its particularly robust development. Service Vouchers and Cards The Service Vouchers and Cards activity had operating profit of 135 million euro. The 22.6% increase, at constant exchange rates, reflects: Strong growth in issue volume, particularly in Latin America; The settlement of the dispute with a mutual fund following the insolvency in 2003 of a bank in Latin America; Increased investment in development, notably in the areas of strategy, marketing and innovation. Growth in net income Group net income rose 7.5% to 347 million euro, or 11.0% excluding currency effects. This increase resulted mainly from: Growth in operating profit; A decrease in interest expense related to reductions in the Group’s debt during the year; An effective tax rate maintained below 35%. Improvement in net cash provided by operating activities Net cash provided by operating activities was 753 million euro in Fiscal 2007, compared with 488 million euro in Fiscal 2006. This performance is the result of the improvement in operating profit, a reduction in client credit of around two days, cash advances received in connection with the 2007 Rugby World Cup contract and high issue volumes in Service Vouchers and Cards in the final months of the year. Net debt (borrowings, net of the operating cash position) as of August 31, 2007 was 119 million euro, representing 5% of consolidated equity, as compared to 21% as of August 31, 2006. The recently-announced acquisitions, which are still being finalized in Service Vouchers and Cards (VR in Brazil, Tir Groupé in France) and the Circles concierge services business in the United States will be financed out of available cash and unused credit facilities. Proposed increase of 21% in the dividend In view of the positive results and the level of free cash flow generated during the fiscal year, the Board of Directors will propose to the General Shareholders Meeting of January 22, 2008, a dividend of 1.15 euro, an increase of 21% compared to the dividend paid for the previous year and representing a payout ratio (dividends on Group net income) of 53%. This proposal reflects the high level of confidence of the Board in the ability of the Group to continue to achieve, in a sustainable manner, a high level of profitable growth. Change of the corporate name The Board of Directors will also propose to the General Shareholders Meeting a change in the company’s corporate name. Fiscal 2008 Objectives Michel Landel indicated to the Board of Directors that Fiscal Year 2008 has started well. Sodexho is confident in its ability to manage the effects of the recent strong global price increases of certain food products. This confidence is based on the search for new supply sources, modification of its menus and from improvement in the productivity of its purchasing, (for example, reducing the number of suppliers, rationalization of logistics, etc.). The change of the corporate name, launch of a new international employee share ownership plan and reinforced deployment of information systems and technology will require additional investement in Fiscal 2008. Sodexho sets the following objectives for Fiscal 2008: organic revenue growth above 7%, operating profit growth of around 12% at constant exchange rates. Michel Landel concluded: "These objectives are in line with the project Ambition 2015, aimed at doubling the Group’s revenue. Sodexho employees are fully mobilized to achieve further progress in implementing the six strategic imperatives: Accelerate profitable organic growth; Improve operating profits, margins and cash; Live Sodexho’s values; Make Sodexho’s brand the reference in Quality of Life services; Ensure compliance through reinforced standards, risk management, business rigor and best practices; Create a competitive advantage through our people and their diversity. As a corporate citizen, Sodexho contributes to the economic and social development of the countries in which we do business. Sodexho has received recognition for these efforts including being named for the third consecutive year as "Supersector leader” in our industry sector by the Dow Jones Sustainable Index (DJSI), the sole France-headquartered company to receive this distinction. As a leader in Foodservices, Sodexho places particular importance to offering nutritious and well-balanced menu choices and promoting healthy lifestyles with our customers. Finally, because Sodexho refuses to accept the fact that 850 million people worldwide, including 200 million children, suffer from hunger and malnutrition, we have extended to 23 of our main host countries our STOP Hunger program, launched 10 years ago, and through which we partner with numerous NGOs and philanthropic organizations." Analyst and journalist meeting SODEXHO ALLIANCE will hold briefings today for analysts and journalists at Espace Etoile-St-Honoré, 23, rue Balzac, 75008 Paris. The analysts’ briefing will be webcast and begins at 9:00 a.m. A slideshow presentation will be available on the following link www.sodexho.com, under the "latest news” section, beginning at 9:00 a.m. The audio proceedings of the analysts’ briefing also can be followed by dialing: + 33 (0)1 72 26 01 65. An audio recording will be available by dialing: + 33 (0)1 72 28 01 49 and entering the code : 208534 #. Click here to review a list of a selection of new contracts and large international clients. Financial communications calendar Revenues for the first three months of Fiscal 2008 Wednesday, January 9, 2008. The announcement will be followed by a conference call. General Shareholders Meeting Tuesday, January 22, 2008 at 4:30 p.m. (Paris time) at the Espace Grande Arche (Parvis de la Défense, Paris). The above dates are provided for information only and are subject to change. About Sodexho Alliance SODEXHO ALLIANCE, founded in 1966 by Pierre Bellon, a world leader in Food and Facilities Management services, with more than 342,000 employees on 29,000 sites in 80 countries. For Fiscal 2007, which closed August 31, 2007, SODEXHO ALLIANCE had revenues of 13.4 billion euro. Listed on Euronext Paris, the Group’s current market capitalization is more than 7.5 billion euro. This press release contains statements that may be considered as forward-looking statements and as such may not relate strictly to historical or current facts. These statements represent management's views as of the date they are made and we assume no obligation to update them. You are cautioned not to place undue reliance on our forward looking statements. Annex 1 : INCOME STATEMENT                 (in millions of euro) Fiscal 2007 % Revenue change Fiscal 2006 % Revenue         Revenue 13,385 100% 4,6% 12,798 100% Cost of sales (11,396) -85.1% (10,957) -85.6% Gross profit 1,989 14.9% 8.1% 1,841 14.4% Sales department costs (174) -1.3% (159) -1.2% General and administrative costs (1,181) -8.8% (1,104) -8.6% Other operating income 24 42 0.3% Other operating expenses (18) (15) -0.1% Operating profit before financing costs 640 4.8% 5.7% 605 4.7% Financial income 78 0.6% 54 0.4% Financial expenses (178) -1.3% (162) -1.3% Share of profit of associates 7 0.1% 8 0.1% Profit before tax 547 4.1% 8.3% 505 3.9% Income tax expense (184) -1.4% (172) -1.3% Net result from discontinued operations Profit for the period 363 2.7% 9.0% 333 2.6% Minority interests 16 0.1% 10 0.1% Group profit for the period 347 2.6% 7.5% 323 2.5%   Earnings per share (in euro) 2.22 7.5% 2.07 Diluted earnings per share (in euro) 2.19 7.0% 2.05 Annex 2 : BALANCE SHEET               (in millions of euro) August 31, August 31, August 31, 2007   2006   2005       Non-current assets Property, plant and equipment 440 430 406 Goodwill 3,515 3,623 3,705 Other intangible assets 122 126 87 Client investments 149 146 138 Associates 37 36 32 Financial assets 88 75 74 Other non-current assets 13 18 18 Deferred tax assets 136 241 224 Total non-current assets 4,500 4,695 4,684       Current assets Financial assets 11 17 7 Derivative financial instruments 0 42 40 Inventories 185 168 176 Income tax 48 17 19 Trade receivable 2,089 1,909 1,750 Restricted cash and financial assets related to 454 423 326 the Service Vouchers and Cards activity Cash and cash equivalents 1 410 1 042 949 Total current assets 4,197 3,618 3,267                 Total assets       8,697 8,313 7,951       August 31,   August 31,   August 31, 2007 2006 2005 Shareholders' equity Capital 636 636 636 Share premium 1,186 1,186 1,186 Undistributed net income 633 668 708 Consolidated reserves -178 -361 -497 Total group shareholders' equity 2,277 2,129 2,033 Minority interests 23 17 18   Total shareholders' equity 2,300 2,146 2,051   Non-current liabilities Borrowings 1,839 1,852 1,891 Employee benefits 232 349 309 Other liabilities 79 101 80 Provisions 53 68 53 Deferred tax liabilities 35 75 80 Total non-current liabilities 2,238 2,445 2,413   Current liabilities Bank overdraft 33 36 21 Borrowings 111 68 85 Derivative financial instruments 1 2 2 Income tax 57 80 84 Provisions 49 40 97 Trade and other payable 2,618 2,369 2,197 Vouchers payable 1,290 1,127 1,001 Total current liabilities 4,159 3,722 3,487               Total equity and liabilities       8,697 8,313 7,951 Annex 3 : CASH FLOW           (in millions of euro) Fiscal Fiscal 2007 2006 Operating activities   Operating Profit 640 605   Non cash items Depreciations 186 164 Provisions (1) (34) Losses (gains) on disposals and other, net of tax 3 (21) Dividends received from associates 4 1   Change in working capital from operating activities 188 40 change in inventories (21) 2 change in client and other accounts receivable (210) (189) change in suppliers and other liabilities 284 203 change in Service Vouchers and Cards to be reimbursed 161 131 change in financial assets related to the Service Vouchers and Cards activity (26) (107)   Interest paid (113) (114) Interest received 30 18 Income tax paid (184) (171)     Net cash provided by operating activities 753 488   Investing activities Tangible and intangible fixed assets investments (229) (192) Fixed assets disposals 32 17 Change in Client investments (11) (15) Change in financial investments 2 (15) Acquisitions of consolidated subsidiaries (18) (30) Disposals of consolidated subsidiaries 3 25     Net cash used in investing activities (221) (210)   Financing activities Dividends paid to parent company shareholders (149) (117) Dividends paid to minority shareholders of consolidated companies (10) (10) Change in shareholders' equity (61) (4) Proceeds from borrowings 524 23 Repayment of borrowings (448) (71)     Net cash provided by (used in) financing activities (144) (179)                   Increase in net cash and cash equivalents 388 99   Net effect of exchange rates on cash (17) (21) Cash and cash equivalents, as of beginning of period 1 006 928                   Cash and cash equivalents, as of end of period 1,377 1,006 Annex 4 : SEGMENT ANALYSIS     (in millions of euro)       Revenues Fiscal Fiscal 2007 change 2006   Food and Facilities Management North America 5,492 0.2% 5,479 Continental Europe 4,388 5.8% 4,148 United Kingdom and Ireland 1,475 7.7% 1,370 Rest of the World 1,591 10.9% 1,434 Service Vouchers and Cards 447 19.7% 373 Elimination of Intragroup Revenues -8 33.3% -6 total  13,385 4.6% 12,798           Operating profit Fiscal Fiscal (before corporate expenses ) 2007 change 2006   Food and Facilities Management North America 253 -8.7% 277 Continental Europe 214 5.1% 203 United Kingdom and Ireland 72 72.6% 42 Rest of the World 41 49.1% 28 Service Vouchers and Cards 135 19.3% 113   Headquarters -75 29.5% -58 total  640 5.7% 605